IMF to consider US $800 mn loan tranche for Sri Lanka

The International Monetary Fund (IMF) will consider making a US US $400 million loan disbursement to Sri Lanka at a meeting taking place tomorrow, and the final $400 million tranche of a $2.6 billion loan a few months later, the global lender said on Friday.

The IMF has withheld the loan tranche since September in response to the Sri Lankan Central Bank’s failure to implement its repeated request to allowing flexibility in the rupee currency.

After spending more than US $2.7 billion of the island nation’s reserves propping up the rupee, the central bank on Feb. 9 shifted its foreign exchange policy to allow the market to determine the currency’s rate, and stopped defending a certain price level by selling dollars in the market. “The (IMF) board is meeting on Monday April 2 to discuss the seventh review and there could be an eighth review a few months later. So the plan is two reviews of about $400 million each,” Koshy Mathai, the IMF Resident Representative for Sri Lanka, told Reuters via a text message. The Central Bank on last Thursday said it may stop supplying dollars to pay oil import bills from May, its latest move to allow more rupee flexibility.

The global lender has already disbursed US $1.8 billion through six reviews since the loan was approved in July 2009, and the central bank had earlier said it will not draw the remaining $800 million from the global lender due to the high interest rate.

Two central bank officials confirmed that now the country has opted to borrow the remaining tranches and complete the programme. The central bank has started to rebuild its depleted reserves, they added.

Central Bank Governor Ajith Nivard Cabraal has said the country is not desperate for the IMF money, but it will be a bonus if it comes through, backing away from his previous stance of not borrowing the remaining tranche.

Prudential fiscal and monetary policies under the global lender’s programme, along with optimism after a 25-year civil war ended in May 2009, has helped attract foreign investors to the $59 billion economy.